San Diego Estate Planning Lawyer Blog
In a revocable living trust, the person making the trust (the grantor) usually decides how the trust’s assets should be distributed after he or she dies. However, there may be circumstances where the grantor wants to give that power to someone else, usually one of the trust’s beneficiaries. This is known as a “power of appointment.”
Court Rules Son Improperly Used Father’s Power of Appointment
If the grantor places no restrictions on a power of appointment, it is considered a “general” power. This means the beneficiary can name anyone–including themselves or their creditors–as recipients of the trust property. A special power of appointment, in contrast, restricts the beneficiary’s discretion.
A recent California case illustrates how a special power of appointment operates in practice. The grantor was a Florida man who created a revocable living trust. The trust said that upon the grantor’s death, after making certain specific gifts, the remainder of the trust’s assets would be divided into three sub-trusts, one for each of his sons.
Each son was given a special power of appointment over their own sub-trust. This allowed the son to name one or more of the grantor’s “lineal descendants” to receive any remaining portion of the sub-trust’s assets upon the son’s death. But the power of appointment excluded any designation of the “beneficiary and such beneficiary’s creditors, estate, and creditors of such beneficiary’s estate.”
After the grantor died, one of the sons signed a new will, in which he exercised the power of appointment under his father’s trust. The son’s will said that upon his death, any assets remaining in his sub-trust should be distributed to a separate revocable living trust that he created with his wife. The son, who lived in California, passed away in 2013.
The son’s death prompted litigation over the validity of his exercise of the power of appointment. The plaintiff was the son’s widow, now acting as sole trustee of their trust. The defendant was the successor trustee of the sub-trust named under the father’s trust. The plaintiff said she was entitled to the sub-trust’s assets under the power of appointment. The defendant argued the appointment was invalid.
The courts sided with the defendant. The California Sixth District Court of Appeals, affirming a probate judge’s earlier order, said the “clear and unambiguous language” of the father’s trust required the son to only exercise his power of appointment in favor of his father’s “lineal descendants.” The son could not appoint himself, his wife, or his trust. The widow maintained the language of the power of appointment, which referred to “my lineal descendants and their spouses,” supported her claim. But the Sixth District said the use of the word “and” meant the power had to be exercised in favor of “at least one lineal descendant” of the father.
Need Help From a California Estate Planning Attorney?
Trusts often raise complicated legal questions. It is important to fully understand these implications before making a trust, in order to minimize any potential confusion later on. If you need help from a qualified San Diego estate planning lawyer regarding a trust matter, contact the Law Office of Scott C. Soady today.